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Auctions II: Reverse-Auction Setting is not Optimal for You

A
couple of days ago, on 2 April, we began to discuss auctions. Please
read the first
instalment if you haven't yet! It offers a useful
introduction which will make this easier. We established that, unlike
in one-to-one negotiation setting, auction settings include multiple
buyers or multiple sellers. We concluded that participating in an
auction — or auction-like — setting was not optimal because
it made you and your competitors undercut each other. Now we'll
discuss the why in
more detail, and also the how.

Setting
the ground for competitive procurement, which benefits the buyer

After
repurposing two bullets from Wikipedia's article on
requests for proposals, an auction:

informs
suppliers that an organization is looking to procure and encourages
them to make their best effort

alerts
suppliers that the selection process is competitive

Sound
familiar? You've probably heard the
adjectives: best and competitive often
enough. In fact, they have become de rigueur throughout the
translation 'industry'. It also:

allows
for wide distribution and response (this means that there
will be quite a lot of competitors, not just two or three)

In
summary, a potentially large mass of people is alerted that there is
a need to compete, and encouraged to make their best effort.
Best for the buyer, just to be sure.

Interlude
— contests — a different kind of competition, but not totally
different (though nicer)

In
the translation 'industry', the competition sometimes comes down to a
contest and rates are fixed or close it. This is not unlike civil
service examinations, which have a long tradition going back e.g. to
the mandarin
examination in imperial China, or even DipTrans or sworn
translator exams in which you gain credentials rather than direct
work, and the pass threshold is based on how good you are in the
abstract rather than relative to other people. Enrolment in
professional associations is also similar.

Civil
service examinations and similar state exams actually take
competition further — sometimes you're graded against other people
and only the top n% wins.

And
then there are also contests. The whole point of them is that not
everybody can win.

Contests
resemble auctions, but we'll become paranoid if we exaggerate the
similarity. In some cases what looks like an auction is more like a
contest (which means not as bad). The difference is that contests
have the potential to be elevating on a personal level rather than
commoditising the procurement and taking the personality away.

The best
effort — breakdown

Best
effort is
not limited to just best
rates.
There are also 'non-price factors' (or 'drivers'), but they are not
necessarily as nice as non-price
competition is in theory. Notably, non-price factors can
still be very quantifiable (measurable), even quantitative in nature,
and even outright numbers.

The
best example of a numerical non-price factor is the role of deadline
in some inquiries directed to multiple translators or agencies. If
you recall, quotation forms often have a deadline field, where you're
supposed to enter a deadline on your own. (Just to be sure, a
deadline is not the same as a completion date, the vibe is
different.)

Other
distinctly quantitative non-price factors include:

years
of experience, e.g. 4 or 12 (raw number)

number
of words or pages in the field, e.g. 5000 or 250,000 (raw number or
numerical range)

how
many words or pages you can produce in a day cycle (range again)

sheer
number of testimonials (translator directories often calculate this
number and make it visible, even prominent)

number
of credentials, memberships, publications, courses attended etc.
(obviously sized up rather than actually counted, barring some
really surreal procedure)

Sometimes
these factors reflect necessities of the job or position — for
example credentials, productivity, experience level can sometimes be
reasonably necessary for the task — but they're often just a
criterion to narrow down the large pool of people who will respond to
job announcements.

Some
less obvious and more debatable examples include:

degrees,
in some countries, e.g. B.A. < M.A. < Ph.D.

software
versions

multiple
different CAT tools or office suites or other types of software or
equipment

For
each of these you could make a qualitative case, but the numbers game
(or ladders) may prove too hard to resist. So even when it's not
price competition, it's still based on numbers, or just as good. The
blend of price and non-price factors can produce a different equation
each time, meaning that a different weight is given to the price, so
it's not only just about driving the rates as low as possible. But
there's still an equation with a lot of basically numerical variables
in it.

This
said, not all quantitatively or even numerically driven recruitment
equations necessarily hurt you. Or necessarily more than simply
living in a market does.

Some
people just like the transparency of such models. Others thrive on
numbers. Yet others are strong on the numerical variables, such as
well they have a ton of everything (experience, credentials,
testimonials, types of software etc.), but in the latter case I
wonder what they're doing competing on someone else's terms rather
than trying to dictate their own.

Bottom
line, in an auction-like setting you're basically competing on
numbers or very similar types of variables, with a good chance that
such a mode of comparison will not make you feel appreciated as a
human being. There is a danger that your work may be commoditised,
that something you put your soul in will be traded like coal by the
wagonload.

Inversion
of roles: Vendors/suppliers competing means the buyer reaps the
premium, not you

This
has probably become all but obvious by now, but let's nail it down:
When you and several others in your class are competing, the bargain
is the buyer's.

You
and the other potential sellers don't just undercut one another a
little. On the contrary, all of you are cut right down to your bottom
lines unless all of you hold the line, which is unlikely to happen.
This is free market at work, you can't force people to keep their
prices up if they want to land the deal.

In
other words, the buyer does not need to haggle, you are doing it for
him

The
buyer can sit back and watch the sellers do the haggling for him,
among themselves.

When
the buyer additional imposes a unique bidding rule,
i.e. one chance to bid per participant, the sellers may even jump
straight to their best effort.

The
above saves the buyer the time, the exercise, and the need to develop
any real haggling skills.

Another
benefit — haggling with shadows (or with yourself)

By
introducing the competitive model, the buyer can still reap almost
the entire benefit of the bargain as long as you don't know that
you're the only potential seller to respond or the only one who is a
viable option.

It's
almost as simple as telling you to be competitive and getting a
discount. Again, with no haggling time consumed and no haggling skill
required.

Yet
another benefit — preselection

The
buyer can even get the sellers to compete way before any concrete job
materialises. Sometimes it is not even certain that any work will
actually be there or how much of it.

The
competitive atmosphere can get the sellers to fight tooth and nail
over something that doesn't even exist. And we're getting close to:

People
like to win, nobody likes to lose, and those who have already
invested much want to protect their investment, so they will keep
investing a little more, even take small losses, to avoid losing the
big deal they are after. Would you rather finally accept a lousy rate
or lose the hours you've already put in analysing the task, assessing
the workload, developing a tentative schedule, preparing a quotation
for the buyer?

Perhaps
more importantly, the whole thing with competing, competition and
being competitive works as a distraction. It turns attention away
from what a bargain the buyer is making here, and focuses it rather
on finding ways to undercut your colleagues who might want or need
the same job.

Thus,
all sellers end up competing for the chance to offer the buyer a
discount. Every buyer, actually. There are many translation jobs, not
only many translators, but since the procurement (recruitment)
setting for each job is competitive, everyone ends up undercutting
everyone for all jobs. The pay will end up lousy for all jobs rather
than the workload being divided among people working for decent
rates.

Between
facts and emotions, vendor/supplier is less than seller

Participating
in a reverse auction makes you no longer really a traditional seller
any more. Thus, you are not that accomplished elderly gentleman
proudly standing behind the counter of his own shop, often built with
his own hands, whom you know from westerns.

On
the contrary, you rather become the working bee carting its produce
to the castle to await the lord's pleasure, either on the bee's own
motion or having been summoned and unable to refuse. Unable if not
because the lord has a jail and a headsman, then because some types
or volumes of goods need a lord's capacity for demand and a lord's
purse.

A
more depressing analogy could be drawn with a troupe of dancers
swinging to the left or the right in response to the motions of the
lord's waving hand. This is what it looks like when buyers totally
get their way and can be lining up their potential sellers just the
way they want.

Selling
you the job

Just
as one says that the roles of the buyer and seller are inverted in a
reverse auction, one could also say that in a reverse auction the
buyer is selling you the job.

Selling
it like a diamond

The
job is sold to you as if it were rare goods, but it's more
like with diamonds: it comes down to hype and controlling the
supply. Diamonds are not rare at all, nor are they the most valuable
gems are at all. The tradition of spending the worth of, say, a man's
two salaries on a diamond for his betrothed, was allegedly inspired
by a diamond-selling company, obviously not in a fit of altruism.

Effectively,
you are purchasing a job in a setting in which the person or company
with the job controls the setting. That setting is a treacherous
ground, and it plays with your head. Translation jobs are
commonplace, as are translation clients and translation
intermediaries and resellers. This is not a negative comment, just a
fact. On the other hand, auctions are made to look like you're being
offered a unique opportunity not to be found elsewhere etc.

...
Sometimes showing you the bling but still asking for — or requiring
— a signing-up discount!

Like
you should be so happy to work for them and their profitable company
that you'll gladly take a cut in your own profit to allow them to
make even more of those lovely quarterly figures.

Make
no mistake, we're talking about the buyer's profit as business, not
about saving humanity

If
you care so that everybody or at least many people and companies can
afford your translations, then your prices are affordable,
not competitive. In an ideal world, your lower
translation rates would lead to lower consumer prices. People would
pay less for home utensils, entertainment, education, holidays
perhaps.

But
that relationship is not so direct, and between you and the consumers
ending up using your translation or something being affect by it
there are often entire chains of business companies whose mission is
to maximise the profit for the shareholders. And for maximising the
profit for shareholders the executives will rake in a nice incentive
bonus.

On
translation-related message boards we talk about two things: large
translation companies asking for lower and lower rates, and the same
companies boasting their high profit margins. Let's connect the two
facts. We are not saving any damsels in distress here. There are
people in the world who really need pro
bono services of the same kind as those provided by you.

The
bidder's costs: winner takes all, no return for non-winners

Whether
the auction is regular or reverse, participants other than the winner
are usually not paid for the costs they incurred in participating. In
your case as a freelance professional, this includes your time. Time
which you could spend working.

Unless
you either win or at least receive some valuable feedback which helps
you win next time or go compete elsewhere with more success (or stop
competing in auctions), you get nothing if you don't win.

Actually,
the winner doesn't get any refund, either

The
buyer expects to compensate the winner for the goods or
services bought, not for the cost of selling! In a buyer's
mind, the cost of selling doesn't deserve to be compensated, just
like — where working by the hour — you don't bill the client for
the time spent writing the invoices or especially convincing the
client to hire you.

The
buyer expects to compensate you for the goods or services at fair
market value or below, often much below. The pay does not include any
allowance to reimburse you for the cost of participating in the
auction.

In
the buyer's mind, not even simply getting the job is
supposed to constitute the consideration (commercial equivalent) of
your investment of time and sometimes even money in the auction
process. The mere chance of getting the job is
supposed to be the consideration.

And
just to be sure — the auction process has already made sure that
your profit is as low as possible. Probably lower than in non-auction
jobs that don't require jumping through so many time-consuming hoops.

In
fact, you are indirectly reimbursing the buyer for the buyer's cost
of running the show

The
buyer will typically want to recover the costs of organising and
processing the auction. While the the money will — of course —
not be coming out of your pocket, and you certainly don't have any
claim on the buyer's money which you haven't earned yet, the fact
that the buyer has engaged in a costly auction process means that
there will be less money in the budget for your pay.

The
taste of victory in vigorous competition may be bitter overall

Like
we noted above, since you are competing and the price is something
very obvious to compete on, in a highly competitive setting your pay
is often not going to be satisfactory, possibly even way outside your
normal comfort zone, if you really get carried by adrenaline.

Initially,
you will be energised by the excitement of actually winning, but
after some time the reality will eventually set in, and you can very
much end up being the battered winner doing an onerous job at poor
rates.

And
the winner doesn't even always win

In
the absence of a specific promise — or pressing need — to award
the job to whomever proves the most attractive or least unattractive
seller, the buyer can always call it off if the offers aren't good
(i.e. low) enough.

Notably,
this will happen when you compete for a job which already has a
closed budget. For example because it is being outsourced by someone
who has already had to quote a low price just to get it. Auctions
follow auctions sometimes.

Since
the buyer controls it, you're up for buyer-designed goods and
services and terms and conditions and everything else

A
reverse auction could simply see multiple sellers of very similar
goods competing for the buyer's order, such as when someone passes
from one cab to the next in a line, loudly asking how much for the
ride. However, reverse auctions are frequently connected
with buyer-designed goods or services. This means
products or services which fit a particular need or purpose.

In
the translation 'industry', it is about translation, but the buyer
may want to design the way you're going to provide it, and especially
the business and legal terms on which you provide it. It would be
misleading to call that bespoke or tailored translation.
Bespoke is when a tailor cuts the material for your exact dimensions,
rather than an approximate range, so that it lies well on you. This
may also involve a custom design, true, but designing the way in
which the tailor is to organise his work, answer phones and be held
liable (and hold you harmless etc.) is something else.

In
short, if you get your jobs in auction-like settings, you're likely
to end up with buyer-designed terms and conditions of
providing your professional services.

You
don't get paid for exceeding the expectations

Buyer
design specifications sometimes leave you with less opportunity to
shine and negotiate a premium simply because whatever unique assets
and propositions you have to offer were not taken into account
when designing the specification. The specification was likely
designed with the average participant in mind, and the buyer's own
idea of the goods or services in mind, often a fuzzy one, with the
buyer often being clueless about the nature of the services procured.
This is another cause which makes you earn less than you otherwise
could, or be respected less than you should, or have to process
requests which should never have been made.

Buyer
design with footwork done by you

Sometimes
instead of complete buyer design — which would mean some work to do
for the buyer — you may be tasked with filling in descriptions of
how you're going to meet this or that condition, or even doing data
entry footwork such as filling the buyer's questionnaire with data
from your CV, which the buyer also requested.

Wasting
time and money for the buyer's convenience

You
may be asked to prepare a lot of paperwork up front which the buyer
will only need from the winner. Setting the sellers to compete
against each other and shoulder all the costs, sort of like puppies
will fight for crumbs, can have a demoralising effect on buyers who
are basically getting their way in everything.

This
is not uncommon in the translation 'industry' with all the
questionnaires and forms you need to fill in without even knowing if
you will ever actually get even a single job from that particular
source. Questions and forms which more often than not repeat things
which are in your CV or in the e-mail exchange, and infrequently
ill-design or outright clueless.

Caveats
and silver linings

To
some people competitive and best are
just words, uttered or written without deeper thought.

People
from some countries are influenced by the crude style of their legal
regulations and quality standards which makes no distinction between
literary works and construction works.

Not
everybody is laid back or can afford to be. Some companies still
engage in very formal and carefully recorded communication. Some
have no choice, e.g. owing to the nature and source of their
financing.

Buyer
specifications often save a lot of time and stress by answering
before you discover the need to ask. Plus, you can't have the best
of both worlds, you can only find some balance between clients who
don't know what they want and clients who know it too well.

Asking
you for a competitive rate in a one-to-one setting
is not necessarily an attempt to get you to compete against shadows.
Possibly, the buyer cares about the price but also wants to avoid
the costs and hassle of an auction, thinking you may appreciate
avoiding them too (along with the uncertainty of the outcome). And
he has a point there.

It's
hard to steer totally clear of commoditisation. Many translators
themselves offer their work to clients using commoditised language,
as if they were selling some merchandise. Possibly you do as well,
for example if you refer to yourself as Translations instead
of Translator. There is a slight degree of
commoditisation of your work in things like that.

Always
see the difference between contests and auction, healthy competition
and unhealthy competition. Be realistic about the unhealthy elements
— you can't totally avoid them, and you're probably introducing
some on your own in the way you write or talk to your potential
clients.

Recap

Reverse
auctions are for the benefit of the buyer, not you. The auction
mechanic with its competition language uses psychology against you,
notably distraction, loss aversion, desire to win. It makes sure the
benefit of the bargain goes over to the buyer, often saving the buyer
the need to engage in the haggling, which the bidders will do for
him. Competitiveness can be used as a magical word to make even a single
buyer drop his prices without going through the real process of competition. Even if
you win, it may be a Pyrrhic victory, resulting in you working below
your bottomline, or even taking a loss.

What's
next?

In
Part 3, we'll focus on RFP's, i.e. offering your services in tenders,
or why you don't want to (in case you don't already know). In Part 4.
3 we'll talk about how to control the damage, turn the mechanics to
your advantage or leave them behind.

Comments

This all sounds like a great argument for just not participating in reverse auctions at all. To hear you describe it in these terms, I think I'd feel impure if I participated in such a thing. It almost smacks of prostitution.

Hi, Cara! :) Well, I was trying to keep the tone in check, since I mostly wanted this to be informative, but if you're trying to put a message across then it sometimes takes a bit of force. I do not wish to say it's impure, but it certainly can be demeaning. It does reduce translation to commodity status, whereby you're basically peddling products instead of exercising a profession, but the relationship with the translator's own status is less direct. Still, as a supplier of translations you probably don't have the same status as does a member of a respected profession (doctor, lawyer etc.).

Also, you can never fully avoid auction mechanics. Even if the recruitment/procurement process is not expressly an auction, there will still always be some auction elements. I think auction mechanics are basically inherent in any sort of competition and, by definition, you have competition whenever you have more than one potential seller the buyer can go to.

Well, it feels 'cleaner' to me if people are coming to look for the translator via word-of-mouth, viewing that person from the get-go as 'the expert', the 'consummate professional', the 'miracle worker', the one 'in a class by themselves' or whatever, so that they are pretty much set on hiring the person, and the only question is how much they should budget for that purpose. To me, that sounds like a forward auction rather than a reverse auction :)

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